Right after the JPMorgan / Bear Stearns deal, the Fed has cut the discount rate, the rate it lends to banks normally overnight, from 3.5% to 3.25%, now bringing it within 25 basis points of the funds rate, currently at 3%. Remember that the FOMC meets this Tuesday as well with the markets potentially pricing in a cut from 50 basis points to up to 75 basis points. If you’ve forgotten how to calculate the odds of a rate cut, check out this quick tutorial I wrote up a few weeks ago.
JPM purchases BSC for $2 / share and the Fed cuts the discount rate a quarter point? Perhaps the Fed now knows that banks may actually fail and are doing something about it? And now what happens tomorrow? Do we rally on the news that the Fed is willing to cut even on a weekend or do we pull back due to the, what I think is, uncertainty in the other financials? And will the Fed still cut 75 basis points off the funds rate Tuesday? Too many questions right now I think before the markets can attempt a solid rally.
I’ll keep you updated if anything else happens this evening.
Yes, that’s two dollars per share. This is not a typo.
Source: CNBC
In repsonse to the BSC to the Woodshed comment thread, it’s being reported by CNBC that JPMorgan has offered to buy Bear Stearns at $15-$20 per share. Currently, Bear Stearns’ management is meeting to consider the sale of their company. If BSC doesn’t accept, could we see them go bankrupt? In any event, expect some nice fireworks tomorrow. If BSC’s book value is this low, what does that mean (if anything) for the other financials like Lehman or even Goldman?
Source: CNBC
In case you’ve been under a rock, here’s the latest coverage on the Eliot Spitzer saga. Enjoy!
Rumors have been swirling about Bear Stearns (BSC) having a liquidity crisis. Earlier this week, BSC came out and said everything was alright. This morning, JPMorgan (JPM) and the Fed Bank of NY came out stating they’re providing BSC with liquidity. BSC came out soon after stating the past 24 hours liquidity within the firm has deteriorated rapidly. BSC currently trading at 37.95, down 33% on the day. Options activity is showing BSC actually going belly up. Stay tuned.
Update: Michigan sentiment is out a bit lower than expected at 70.5 vs. 70.8 expected. It doesn’t matter since the Dow is down 200 points. Let’s hope capitulation finally kicks in.